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Our view 2010


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An exclusive collection
of articles by the
Bocconi Faculty
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Our view 2010

  1. 1. OurView’10 An exclusive collection of articles by the Bocconi Faculty on the world economy, society, environment, technology and more.Bocconi. Empowering talent.
  2. 2. Contents*World EconomyGlobal Recession Is Affecting the World Food Program 3by Leonardo BorliniEU vs US over Open Skies 5by Stefano RielaOf Organic Apples and Oranges 7by Enzo BaglieriThe Underground Economy Slows Down the Integration of Immigrants 9by Carlo DevillanovaFive Months of Electoral Campaign in One of the Worlds Largest Democracies 11by Antonella MoriChina Rising 13by Carlo FilippiniA Dangerous Country with an Uncertain Future 15by Giorgio BrunettiWhat If Obama Were the New FDR? 17by Giuseppe BertaManagementMedia Coverage Is for Sale 21by Diego Rinallo______________________________________* Our View is a selection of articles previously published in the Bocconi Newsletter. Articles are available on the web on,the Bocconi online newsmagazine, at the following address: by Office of International Communication.
  3. 3. Europe Will Also Be Affected by US Healthcare Reform 23by Giovanni FattoreChampions of Earnings 25by Dino RutaDrop the Mantras of Contemporary Management 27by Francesco CastellanetaThe Profile of Companies Weathering the Crisis 29by Giovanni ValentiniGetting Back to Basics Is Getting Business Back on Its Feet 31by Paolo PretiCompanies Are Still Investing in Promising Resources 33by Claudia TamarowskiIts Not Only about Low-Cost: Prices Are Polarizing 35by Sandro CastaldoWorking as Business Innovation Manager 37by Silvia ZamboniSuper-Sponsored Sports 39by Paolo GuenziInstitutional Factors and Competitiveness Determine Where Cars Are Made 41by Carlo Alberto Carnevale MaffèBringing Craftsmanship Back into Fashion 43by Stefania SavioloThe Lone Man at the Top Doesnt Come Out on Top 45by Beatrice Bauer and Massimo MagniIntangible Assets: You Cant Touch Them, but They Make the Difference 47by Francesco PerriniGoing to the Beach on the Other Side of Globe 49by Magda Antonioli
  4. 4. Invention: Learning by Doing 51by Raffaele Conti, Alfonso Gambardella, Myriam MarianiEurope, America, China: Each is Global in Its Own Way 53by Margherita PaganiRevealing Secret Recipes 55by Giada Di Stefano and Gianmario VeronaEntrepreneurs, Listen to Lao Tzu 57by Thanos Papadimitriou and Brett MartinSociety and CultureWork Turns Liquid and Overflows 61by Vincenzo PerroneMoms Are Public Opinion 63by Paola DubiniEuropean Museums: A Common Idiom for the Contemporary 65by Stefano Baia CurioniStagnating? Certainly Not Culture! 67by Anna MerloPolitics as a Profession in Italy 69by Alex Turrini and Giovanni ValottiSickness and Health Are Becoming Global 71by Eduardo MissoniArt: The Usual Exaggeration 73by Stefano Baia CurioniOnce upon a Time There Was Photojournalism 75by Marina NicoliItaly Lags Behind in Women at Work 77by Paola Profeta
  5. 5. The Economics of Influenza 79by Guido Alfani and Alessia MelegaroEnergy, Environment & InfrastructureClimate Change: Everybody Waiting 83by Luigi De PaoliItalian Infrastructure: Priorities for North and South Are Not the Same 85by Lanfranco SennRenewables, Golden Opportunity 87by Clara Poletti and Arturo LorenzoniOil Safety: Lessons from the Nuclear Industry 89by Emanuele BorgonovoTechnology and InnovationIf Users No Longer Generate Content 93by Luigi ProserpioCollaboration Is Now Making Hardware Easier 95by Emanuela Prandelli and Gianmario VeronaControl Freaks Fail Online 97by Silvia VianelloNow that the E-book Is Here, Lets Make Books 99by Paola DubiniWeb 2.0 and Gen Y: the Hidden Truth 101by Leonardo Caporarello and Giacomo Sarchioni
  6. 6. FinanceOverly Expansionist Sovereigns 105by Carlo FilippiniDo We Really Know How to Measure Family Wealth? 107by Stefano GattiWhy Young People No Longer Trust in the Honesty of Accountants 109by Mara Cameran e Ariela CaglioThe Altruism of Saving 111by Brunella BrunoThe Phenomenology of Business Scandals 113by Alessandro ZattoniCalculating Regret 115by Alessandra CilloHow to Hedge Your Bets for a Toast of Burgundy Pinot Noir 117by Claudio ZaraLawThe Crisis Has Broken a Convergent Path 121by Maurizio del ConteMade in Italy Protected by Law 123by Giorgio SacerdotiThe Union Has Only Blunt Tools to Impose Budget Discipline 125by Claudio DordiCan I Upload or Not? 127by Oreste Pollicino
  7. 7. WorldEconomy
  8. 8. World EconomyGlobal Recession Is Affecting the World Food Programby Leonardo Borlini After being in the limelight for much of the 2000s, the attention lavished on the UN program against planetary hunger and malnourishment seems to have vanished, as donor countries are retreating from their commitments.The silence of global media has fallen over the implementation of the commitments made by countries withinthe scope of the UN World Food Program, which was established a decade ago to face the food crisisaffecting a growing share of the world population. The lack of news over the last year is problematic. Althoughthese are unilateral commitments by UN members and are at best forms of soft law, media gave the WorldFood Program attention until mid-2007.Also, job applicants to international development agencies, including the World Bank, were interviewed onthe content and reach of the World Food Program. Fishing for data, one finds a telling figure: given the billionsand billions of dollars spent to rescue banks and counter the financial crisis, the original $12.3 billion pledged tofight world hunger are being downscaled because of the macroeconomic difficulties many donor countriesare facing.What can be done to reduce to a minimum the likelihood of another crisis as damaging as this one? JacquesAttali, George Soros and Joseph Stiglitz, i.e. a grand commis, a global financier and philantropist, and a Nobeleconomist, respectively, concur on a fairer distribution of income and wealth as the main preventive measureto be taken in order to avoid the recurrence of a world recession. A less unequal income distribution wouldobviate the need to take on large quantities of debt (which is then repackaged and sold by others on globalfinancial markets) to finance primary needs.This would be a forward-looking policy to be collectively decided and widely implemented at theinternational level, along with the reforms in global governance listed by the recent UN Conference on theWorld Financial and Economic Crisis and Its Impact on Development. However, the political mechanismsleading to a collective framework orienting individual economic decision-making and self-interest have yet tobe found. Recent UN reports are not even making the news, but they say the governments of donor countriesare suspending the implementation of the program to feed the world’s hungry. The World Food Program was 3
  9. 9. World Economylaunched long before the global recession to guarantee one of the four fundamental freedoms listed byFranklin Delano Roosevelt in 1941: freedom from want.The AuthorLeonardo Borlini teaches International and European Law at Bocconi. From Bocconi Newsletter no. 82/2010 4
  10. 10. World EconomyEU vs US over Open Skiesby Stefano Riela In the highly competitive global market for commercial aircraft, the clash between Boeing and Airbus inevitably ended up in the WTO court. An initial ruling was issued, but the transatlantic rivalry could end up providing a new framework agreement stipulating rules valid for all players.The aircraft market is special because of its huge size and level of concentration. It’s also interesting for beingat the center of a long-running feud between an American and a European company.The recently tested 787 Dreamliner by Boeing has been the American answer to Airbus A330, which has soldover 600 units to date and is being upgraded into the A350. The Airbus family has planned for an expansion ofits offer, which includes the A380, the world’s biggest airliner and direct competitor of the best-selling Boeing747, which is also being upgraded.The transatlantic battle started in the 1980s when Boeing acquired McDonnell Douglas. The Federal TradeCommission approved the deal, while the European Commission did only very partially. Brussels wanted moretransparency and less reliance on government support, especially for military procurements, in order toprevent the abuse of market position on the European market by the new player.After Airbus was born, it soon emerged that the tie linking Boeing to the US federal government was as tight asthe budding relationship between the new aircraft company and major European governments, so much thata bilateral agreement in 1992 committed both parties to reductions in government subsidies: Airbus should notreceive aid in excess of one-third of the production costs for the new models, while indirect government aid toBoeing should not exceed 4% of its receipts.This threshold has been surpassed by Airbus, Boeing claims, for the manufacturing of certain components ofthe A300 family, since various EU countries gave subsidies for $4.7 billion to the aircraft maker. On 6 October2004, Boeing decided to take Airbus and the EU to the WTO court. This occurred at the moment when Airbus 5
  11. 11. World Economywas surpassing Boeing both in terms of orders (256 more in the 1998-2004 periods) and deliveries of new planes(59 more in the 2003-2004 period).It is true that the public-private nature of Airbus is self-evident. It a company regulated by French law which isowned by EADS, a Franco-German group (with lesser Spanish involvement) in which private companies andpublic actors (including the French and Spanish governments) hold stakes. In September 2009, the WTO sent itsconfidential ruling to the EU and the US. According to media leaks, the WTO appellate body ruled in favor ofthe claimants, the US and Boeing, in 30% of the instances and against government aid received by Airbus. Soat halftime, Boeing seems to be ahead in the game.But this could end up being a pyrrhic victory, because the US company is seriously behind schedule with itsnew projects, by two years in the case of the Dreamliner, which could cost heavy penalties on its 800 orders.But the second half still needs to be played and final ruling has not yet been made. The game could even gointo overtime, if Airbus appeals.On the same day that the US deposited its complaint, the EU fought back by denouncing the subsidies thatthe federal government is giving Boeing through NASA, the Department of Defense, the Department of Trade,several other government agencies, and also through export subsidies (forbidden by the WTO), taxexemptions, and the financing of infrastructure and product development.The lengthy process to arrive at a final WTO judicial ruling could favor the renegotiation of the 1992 bilateralagreement, by making it more flexible. The new agreement could go beyond the transatlantic relation andset rules for other countries currently developing their domestic aircraft industries. For instance, Canada’sBombardier and Brazil’s Embraer are winning market share in the regional aircraft segment hitherto dominatedby Boeing and Airbus, while Japan, Russia, and China are developing ambitious projects. Summing up: theduopoly ruling over global skies is alive and well, but new players are coming to the fore on the political andeconomic scene.The AuthorStefano Riela teaches European Economic Policy at Bocconi. From Bocconi Newsletter no. 84/2010 6
  12. 12. World EconomyOf Organic Apples and Orangesby Enzo Baglieri Localism and organic labelling are causing a lot of confusion, making it difficult even for the most scrupulous consumers to evaluate the overall environmental, health and community impact of their produce purchases, whether at the farmers’ market or the supermarket.The fear of animal pathologies, higher sophistication in food purchases, the return to forms of local identity areall driving the demand for “sustainable” forms of consumption. For instance, “Zero-kilometer markets”, wherelocal produce is exclusively sold are being introduced in the Veneto Region, under the sponsorship ofColdiretti, Italy’s biggest farmers’ organization. This has favored the emergence of a zero-kilometer supplychains and networks of producers, and many are pondering the introduction of a “sustainability label” in thisregard. The Regional Law 7/2008 favors the purchase of local foods to feed nurseries, schools, hospitals, andthe like. However, one should not consider “local” a synonym for “sustainable.”Over the last 50 years traditional methods of cultivation and rearing have been outmoded by the strongmechanization of agriculture, reliance on artificial fertilizers and chemical pesticides, selection of varieties foraesthetic appeal and transportability. These developments have been pulled by the need of higherproductivity to supply supermarkets and urban and suburban consumers. The growth in large-scale retailinghas in turn favored a globalization and concentration of agricultural suppliers, while supermarket chains haveseen their bargaining power increase vis-à-vis agricultural producers.There is however no guarantee that a local product is by definition sustainable, because there only fewproducers that don’t rely on tractors and hydrocarbon-based fertilizers. Also “organic” food (biologico, inItalian) is not necessarily sustainable, if distribution chains are long and logistics is heavy in fossil fuels. The rise offarmer’s markets and home delivery of local foods will continue to blur the distinction between territoriality andsustainability, as long as an objective certification of the sustainability of the processes and technologies ofcultivation, grazing, manufacturing and transportation is not available.The emphasis should those go on designing controls for zero-kilometer produce that have the same standardsof safety and quality that the longer supply chains of agribusiness must satisfy, albeit at the cost of a lesser 7
  13. 13. World Economyfreshness and tastiness of their products. However, the consumer must also play her/his part in ensuring thatproduction, transportation and distribution are sustainable, by not demanding cherries in January and orangesin June, for a start.The AuthorEnzo Baglieri is Assistant Professor of Corporate Economics and Management at Bocconi and Head of SDABocconi’s Operations and Technology Management Unit. He received the ITP diploma from the Stern Schoolof Business of New York University, N.Y. (USA) and was Visiting Professor at the University of São Paulo (Brazil) in2002.Research AreasManagement of technological innovation processes. Management of new product development processes.Project management. Strategic management of relations with suppliers. From Bocconi Newsletter no. 86/2010 8
  14. 14. World EconomyThe Underground EconomySlows Down the Integration of Immigrantsby Carlo Devillanova Immigrant workers are present in every region of Italy. Scattered empirical evidence points to a certain territorial disparity in integration processes. The imbalance could be due to the heterogeneity of social polices and to sharp differences in local tax bases.Little has been written about territorial differences in integration among Italian immigrants. Recent eventssuggest that there are significant differences between the North and the South of the Peninsula. This impressionseems to find confirmation in a recent study edited by Cesareo and Blangiardo on the “Indicators ofintegration”, which shows that an integration index displays lower values on average in Southern provinces.The factors behind territorial specificities in integration processes are manifold. One could be the difference inthe ethnic composition of immigrants in various Italian regions. Very relevant are also disparities in social policy,both in general terms and relative to the plea of refugees, which are delegated to local administrations andare therefore an expression of their political decisions, as well as differences in tax bases.As far as I’m concerned, I’m persuaded that the integration of immigrants in its various dimensions is stronglyfavored by a correct entry into the labor market, in jobs that employ their skills and facilitate upward socialmobility. It is worth noting that overeducated job candidates are much more frequent among immigrants thanItalians. Recent ISTAT estimates that 12% of the labor force works under irregular or unlawful conditions; thisfigure doubles when referred to the South. Off-the-books, underground labor pushes immigrants toward low-skill, underpaid jobs and negatively affects their integration, in terms of housing, health, access to educationand culture.Being an informal worker means not to have access to papers guaranteeing a legal presence on the territory,thus perpetuating conditions of irregularity. These in turn often generate blatant phenomena of socialexclusion. This is all the more true in the areas of the country where the underground economy is morewidespread. 9
  15. 15. World EconomyConcluding, I think that reducing informal labor can facilitate integration processes and, at the same time,reduce territorial differences in this domain.The absence of realistic channels of legal immigration into Italy, the emphasis on border controls, the stronglink between having a labor contract and maintaining regular immigrant status, the recent introduction of thecrime of clandestinity are all measures that make foreign workers easily vulnerable to blackmail on the labormarket, with grave consequences for all other aspects of integration. The culture of the respect of labor lawsmust be heavily strengthened, increasing the number of workplace controls and devising a system ofsanctions that provides an incentive for the immigrant (or Italian) irregular worker to cooperate with stateauthorities.The AuthorCarlo Devillanova is Associate Professor of Economics at Bocconi. He has also taught Macroeconomics for theMaster of Business Administration at SDA Bocconi, and has worked as a researcher in Finance at the Universityof Trieste and an Associate Professor at the Pompeu Fabra University, Barcelona.Research AreasPublic economics. Migration. Economics of labor. From Bocconi Newsletter no. 87/2010 10
  16. 16. World EconomyFive Months of Electoral Campaignin One of the World’s Largest Democraciesby Antonella Mori Brazil is projected to grow by 5% in 2010, but Lula is having problems projecting his personal popularity onto his own party’s candidate to succeed him. This difficulty allows the opposition candidate to make the unusual claim that change will bring continuity.It will take months of fierce campaigning to win the minds of 130 million Brazilian voters in the presidentialelections scheduled for October 3, 2010. The electoral contest is between Dilma Rousseff, candidate for thePT, Lula’s Workers’ Party, and José Serra, candidate of the PSDB, moderate social-democrats, the mainopposition party.Polls have been consistently giving Serra an advantage, although the gap has closed in the last few weeks.Now Serra leads by 5 to 10 percentage points. But the opposition will have to fight hard to score a victory.Dilma Rousseff is Lula’s candidate, and Lula has 80% approval ratings. Brazil was among the last economies tobe hit by the recession and among the first to resume growth: GDP grew by 1% in 2009 and is forecasted togrow by 5% in 2010.It’s not only good economic news that support the president’s popularity. Since the start of his mandate, Lulahas put the struggle against poverty and social exclusion at the center of his government’s program. Hiswelfare programs have had a huge impact on 11 million of Brazilian poor families. It’s only logical he wants totransfer this political capital to Rousseff: it’s not yet sure if and when it will occur.Serra presents himself to voters as the candidate that can ensure that Brazil stays on the growth path blazedby Lula (“Brazil can do more” is his slogan). Although in the opposition, Serra styles himself as a continuitycandidate, building on his good record as governor of the Paulista state. Lula and the Workers’ party are tryingto persuade voters is that the results obtained depend on a progressive political philosophy that only DilmaRousseff can carry on. Lula is in fact highlighting the gulf separating him from his predecessor Cardoso, who 11
  17. 17. World Economybelonged to same party as Serra. In order to show his penchant for leftist policies, Lula could energize industrialand social policy.There are growing signs of this in the last few months: the Vale mining company has been pressured intobuying Brazilian steels and ships for its production needs; the proposal is on the table to constitute a sovereignfund fueled by oil receipts and investing in education and social and environmental protection. It’s not bychance that on March 29, just before Rousseff resigned from Lula’s cabinet (as the electoral law requires), Lulaannounced the second phase of the Program for Accelerating Growth (Pac2), which calls for infrastructuralinvestment to the tune of $880 billion, 60% spent over the 2011-2014 period. If elected, Rousseff would be incharge of Pac2, after overseeing the first phase launched in 2007.The next presidential elections are also very important for Italy, not only for the cultural links connecting thetwo countries (30 million Brazilians have Italian origins), but also because on January 1, 2011, the year devotedto “Italy in Brazil” will start, together with the new presidency. It will be unique opportunity to strengthen theeconomic and cultural relations between the two countries.The AuthorAntonella Mori is a Researcher in Economics at Bocconi at the Department of Institutional Analysis and PublicManagement and the ISLA Center for Latin-American Studies and Transition Economies. She is part of theteaching faculty of the Master in Diplomacy at ISPI, the Institute for International Political Studies in Milan. From1995 to 2001 she taught Macroeconomics at the SDA Bocconi MBA.Research AreasInternational economics. Economic development. Latin America. From Bocconi Newsletter no. 89/2010 12
  18. 18. World EconomyChina Risingby Carlo Filippini The country’s regained hegemony in East Asia is the latest chapter in its historical rivalry with Japan. From the promotion of an alternative economic model to the assertion of strategic and military security, China is re-establishing the leading position it has held over the millennia.Eight hundred years ago China tried to consolidate its influence on Japan. It demanded that the neighboringnation pay a tribute and acknowledge imperial authority. In those times, that was the way of manifestingpolitical and economic hegemony. But a typhoon – kamikaze, the divine wind –dispersed its fleet.Three hundred years later, it was the turn of Japan, just reunited, to attempt conquering China. This attemptalso failed for a similar reason: failure to control the sea. The two great powers of East Asia have always haddeep but competitive relations: China was the source of culture, philosophy, religion (ideograms, the arts,Buddhism, Confucianism). However Japan never really imported or copied them; it always adapted them toits mentality and needs.We can think of the “rewritten” ideograms, which became a new script of its own, while in other tributarynations of China they were left unvaried and used by cultivated elites in parallel to the vernacular. Since theend of the 1800s, the roles have been inverted: Japan fused Western techniques with the Japanese spirit,becoming the second economic power of the world. This rapid growth has almost cancelled the former senseof cultural dependence.Over the last years, China has been impetuously regaining the position of hegemonic power it occupied forcenturies, historically in Asia and foreseeably in the world. Many are the symptoms of growing Chineseregional and global influence: the study and reappraisal of Confucius, of Mao, the system of socialist valueswith Chinese characteristics all underline the growing confidence in its cultural identity which accompaniesthe progressive distancing from either political (Marxism-Leninism) or economic (capitalism or the free market)ideologies imported from the West. 13
  19. 19. World EconomyThe Western democratic model (a bit tarnished by the current crisis) is challenged by the Orientaldevelopmental model of Confucian origin, where the boundaries between market and government, publicand private are grey and uncertain: power must promote the welfare of subjects, and these in turn must giveobedience to authorities.The concrete expression of such sentiments is the opening of hundreds of Confucius Institutes all over the worldwith the aim of spreading the knowledge of the Chinese language and promoting cultural, educational, andeconomic cooperation between China and overseas communities; the institutes are generously funded byChinese authorities.At the opposite extreme there is the strengthening of the military navy and the creation of the “necklace ofpearls”, installations of various kinds from China to the Suez Canal, which have the objective of securing thesupply of oil and raw materials, without which China would see its growth strangled: as of 2009, half of China’soil was imported.Countries and even continents that until recently had been considered hunting grounds reserved for Westernpowers, such as Africa, or even Latin America, now see a rapidly growing Chinese presence: the medium-lowtechnological level of Chinese products seem to better fit the needs of African consumers; Chineseinvestments are not constrained by conditions on workers’ rights or the environment (unlike internationalorganizations and Western nations investing there).Other aspects of the emerging Chinese leadership are better known and certainly more important: the extentof its foreign currency reserves, the size of its domestic market and its export capabilities. In the near future, aChinese could well sit in the IMF’s control room. Naturally, today the world has become multipolar, and thereare several strategic players. Right now a system with China at the center and a periphery of tributary states isunthinkable, but a few decades down the road...The AuthorCarlo Filippini is Full Professor of Economics at Bocconi, where he was Director of ISESAO, the Center for EastAsian Economic and Social Studies and MEc, the Master in Economics. He is a Professor of Economics at SDABocconi, as well as a member of their Advisory Committee. He has also taught at Universtià degli Studi inTrento. He is a member of the American Economic Association, the Royal Economic Society, the ItalianSocietiy of Economists and Christ’s College in Cambridge, UK.Research AreasEconomic development. Technical progress. The Japanese economy. Economic integration of Southeast Asia. From Bocconi Newsletter no. 93/2010 14
  20. 20. World EconomyA Dangerous Country with an Uncertain Futureby Giorgio Brunetti Guatemala: the Central American country is still under the uncomfortable influence of the United States, as can seen by its fleets of ancient American cars and buses. Drug trafficking and gang warfare have provoked more than 10,000 dead: more than its long civil war.In Guatemala, the tormented republic in the heart of Mesoamerica, the casual visitor is struck by the quantityof yellow school buses roaring across the country’s roads. The foreign traveler could be led to believe that thisis an expression of the national fight against illiteracy and poverty plaguing the country: nothing could befarther from the truth! These are vehicles bought on auction by enterprising individuals who refurbish them inorder to provide rides at competitive rates to the general population.These former US school buses are then leased to drivers who push them to the max in order to take home amodest wage. They are jokingly called “chicken buses”, because peasants often bring their poultry on boardin this predominantly rural nation.In addition to school buses, Guatemalans buy used cars from the US. They clog the roads of the country, whichare perennially being repaired, especially in the plateau where landslides are frequent. From Puerto Barrios-Izabal, Guatemala’s only port on the Caribbean, they are imported into the country by locals and foreignersalike. These are noisy, polluting wrecks which feed a whole related industry, consisting of repair shops andspare parts resellers.Two maya kids being photographed by a gringo. This image sums up well the country’s position vis-à-vis theUnited States, which is not only a source of used buses and cars, but much else besides. The strong presenceof US capital in the archetypal banana republic is one thing. Then there is the accumulated US demand forcocaine, since drug traffickers use the eastern regions of the country to transfer the product from Colombia upnorth. Not coincidentally, these are the regions that appear less poor. Lastly, the US is a prime destination forGuatemalan immigrants and a precious source of dollar remittances. The Obama administration is crackingdown on illegal immigration, with the unstated aim of containing the growing Latino presence. 15
  21. 21. World EconomyOther problems worsen the country’s already precarious predicament. One is human trafficking, especially ofwomen and children, which is as frequent as drug trafficking. According the UN, it will soon surpass the illegaldrug and arms trade. Another is gang warfare, a bitter leftover of the civil war, which left behind many menwhose only skill is firing weapons. On the side of the law or against it. In 2009, almost 10,000 murders werecommitted, more than the deaths caused by the civil war, which ended in 1995.Guatemala has long been prey of multinationals and businessmen with few scruples. The country is still a taxhaven. After tourism and oil, coffee is the main export. Even Illy buys Guatemalan coffee.While Colombia and Venezuela are making strides, a solution to this country’s huge economic and socialproblems is not in sight. Guatemala suffers from a fragile and corrupt state, which is unable to fulfill itsresponsibilities in terms of democratic security and education of the younger generations. From Tegucigalpa,the future looks uncertain and dangerous!The AuthorGiorgio Brunetti is Professor Emeritus of Corporate Strategy and Policy at Bocconi, where he has taught since1992. Up to then, he spent most of his academic career at the University of Ca’ Foscari in Venice, where hegraduated in 1960. He has taught at SDA Bocconi, training companies and organizations such as CUOA,Politecnico of Milan, FIAT-Isvor, IFAP and IRI Management. He has also acted as a corporate consultant atlarge companies in leading industrial and banking groups, as well as board member for several companies.Research AreasEconomics of small and medium enterprises. Corporate governance and controls. Policies of assistance forsmall and medium enterprises. Application of networking technologies by district. From Bocconi Newsletter no. 96/2010 16
  22. 22. World EconomyWhat If Obama Were the New FDR?by Giuseppe Berta The task force led by Steven Rattner to rescue the American auto industry has parallels with the age of Franklin Roosevelt’s New Deal, as it encourages collaborative interdependence between business, labor and government rather than imposing regulation from the top down.Are there traces of the New Deal in the current US administration? President Obama, so often reprimanded forhis economic interventionism by the republican opposition to to the point of being accused of socialism, canhe be seen as a heir of Franklin Delano Roosevelt? At first sight, the parallels are not obvious. The New Deal didnot match the current Fed’s expansionary stance in monetary policy, and Obama, unlike FDR, has notlaunched major public spending programs. However, attitudes and proclivities of the Obama administrationhave elements of that tradition, since it revives the great democratic tradition of the 20th century.The latter aspect emerges from the pages of the book that describes the modus operandi of the Obamateam, looking at the forms of government intervention achieved during the trough of the crisis. The book inquestion was authored by Steven Rattner and is titled Overhaul. An Insider’s Account of the ObamaAdministration’s Emergency Rescue of the Auto Industry (Boston-New York, Houghton Mifflin Harcourt, 2010).Rattner, a former journalist who went to work on Wall Street, where he became a successful investmentbanker, is the man chosen to lead the task force appointed by Obama at the start of his mandate to rescuetwo of Detroit’s Big Three: General Motors and Chrysler, whose survival was seriously threatened.Rattner was put in charge of an agile organization with a time-limited mandate created within the Treasury,whose mission was to organize and manage the $82 billion bailout: the largest in US postwar history. It was avery difficult task which Rattner successfully accomplished, who renounced to a Wall Street’s million-dollarbonuses and burdened himself with huge responsibilities for a modest government salary. What puts theautomotive industry task force in the tradition of the New Deal is the fact that it was a special agency, actingin relative autonomy with respect to the presidential administration and thus capable of rapid and flexibledecision-making. Also, Rattner in a sense revived that triangular structure between Big Government, BigBusiness and Big Labor that was a feature of the New Deal, since he had to maneuver between the GM andChrysler executives and the still powerful UAW, the union of auto workers born during the New Deal that had 17
  23. 23. World Economyhelped Obama win the election in the Midwest. And there were furious car dealers, stockholders andbondholders to be appeased, as they feared to lose everything.The system was not one of direct government regulation or control. It was in effect a system of bargainingamong the various actors brokered by the task force. It was a method that stressed interdependence ratherthan coercive regulation. A forward-looking vision of an organized and dynamic pluralism, which revives thegreat lessons of the liberal tradition of the 1900s.The AuthorGiuseppe Berta is Associate Professor of Contemporary History at Bocconi, where he is Director of the ENTERCenter for Research on Entrepreneurship and Entrepreneurs. He was one of the founders of ASSI Associazionedi Storia e Studi sull’Impresa where he was President from 2001 to 2003. He was head of the Fiat HistoricalArchive from 1996 to 2002. He is also part of the steering committee of the Biographical Dictionary of ItalianEntrepreneurs, edited by the Italian Encyclopedia Institute.Research AreasHistory of industry. History of the economic élite and representation of interest. Business and politics. From Bocconi Newsletter no. 98/2010 18
  24. 24. Management
  25. 25. ManagementMedia Coverage Is for Saleby Diego Rinallo Fashion: the back door to high visibility. Buying ads warrants press attention and gets you on the front page.The media pay attention to many categories of products and services, and the generated visibility significantlyinfluences consumers and their spending behavior, since media are acknowledged as having informationneutrality. If, however, we consider that most of media revenues are generated by paid ads, it’s natural towonder whether decisions are free from bias within these organizations when they cover the products andservices of advertisers. It’s a vital issue that impinges upon freedom of the press, the autonomy of journalistsand objectivity in newsreporting.In to a recent study with Suman Basuroy of the University of Oklahoma, we have explored a sample of 291Italian fashion companies, for which we have gathered data on advertising spending and editorial visibility inthe magazines published by 123 Italian, French, English, German, and US publishers, in addition to a host ofcontrol variables.The findings point beyond doubt to the fact that corporate advertisers receive preferential treatment andobtain media visibility that is approximately proportional to their investment.The phenomenon is more marked in specialized fashion magazines. Apparently, general media are a bit freerin their editorial choices, because their advertising base is wider. There are however significant differencesamong various brands in their ability to obtain visibility for a given level of investment. It’s harder for smallerfirms to be out there, even if they spend a lot for advertising. Conversely, more innovative firms getproportionately broader media coverageThe implications of the study are manifold. Firstly, in capitalistic economies advertising is a major force able toshape media content. This does not necessarily damages the consumer, though. If big spenders, as it oftenhappens, market good-quality products, consumer welfare could even be improved because of this. Only 21
  26. 26. Managementwhen inferior products enjoy high levels of “compensatory” advertising, are consumers penalized. The studyalso suggests that the impact of advertising on sales is probably underestimated. Insofar as media coveragedrives sales, advertising campaigns have a direct effect on sales plus an indirect effect via media hype.Looking at managerial implications, firms have several strategies at hand to maximize media visibility for agiven level of investment in advertising. Firstly, media pay greater attention to innovative products, which area better source of news. It’s smaller firms that stand to benefit the most from this hunger for constant novelty.Secondly, firms should consider that there are differences among media outlets in terms of advertisers’influence. Companies focusing on specialized media are likely to get more coverage, especially in certainmarkets: for instance, per euro spent, Italian companies got more extensive coverage in US fashion magazinesthan in French magazinesThe AuthorDiego Rinallo is Assistant Professor of Corporate Economics and Management at Bocconi, where he is also ananalyst for CERMES, the Center for Research on Markets and the Industrial Sector and a faculty member ofMiMec Master of Marketing and Communication.Research AreasMarketing communications and branding. Marketing events. Fashion trade events. Theory of consumerculture. From Bocconi Newsletter no. 81/2010 22
  27. 27. ManagementEurope Will Also Be Affected by US Healthcare Reformby Giovanni Fattore If Obama’s reform passes, universal coverage models will be rule among advanced economies, making it more likely that emergent economies will also embrace universal healthcare systems. However, Big Pharma raises the spectre of a drop in R&D spending due to lower prices.Obama’s proposal for healthcare reform addresses two critical aspects of the US health system: controllingspending, which has gone out of control, and the absence of any form of health coverage for 15% of thepopulation. Both issues are complex, and if Obama manages to solve both he will have pulled off anastounding feat and will have secured a place in American social history. On the other hand simpleaccounting shows that a system that spends 15% of GDP and leaves 40 million uninsured, is not only unfair, it’shighly inefficient. First of all, comparatively higher spending does not translate into comparatively betterhealth. Higher US spending is mostly due to higher administrative and insurance costs, costlier factors ofproduction (skilled labor, medical technologies and pharmaceuticals) and malpractice lawsuits (doctors needto buy costly insurance to protect themselves from them). It’s also a waste providing health care to uninsuredpeople, who often have to be treated in emergency rooms at a higher cost.If common sense suggests that a reform is necessary, the analysis of the entrenched interests at play givespause for thought. 15% of GDP going to healthcare also means that one seventh of the country’s incomescome from there, which means that enormous political stakes are involved. The majority of physicians, insurers,hospitals, pharma companies and medical suppliers are doing all they can to block the reform or diminish itsimpact. It also must be remembered that the uninsured are the poorer minority of the population, having littlevoice and less clout in American politics. On the other hand, the fear that the quality of healthcare provisionwill be lowered among those already insured makes many in the middle classes hostile to any vision ofsolidarity, which is traditionally not very strong in most of the United States.However, US healthcare not only has domestic repercussions, but also international implications. If Obamasucceeds the policy spillovers could be considerable. If Obama were to warrant universal coverage inhealthcare, the symbolic effect would be considerable, since the last bastion of private healthcare among 23
  28. 28. Managementadvanced countries would fall. Universal systems would thus become the models to be imitated by emergenteconomies. For Europe, the effect would be to sanction existing government-funded universal healthcaresystems to the detriment of those in Eastern Europe who still favor privatized healthcare.A second international effect would be on global health industries, Big Pharma in particular, which claims thatthe high prices it secures on the US market are vital to fund R&D. If Obama were to succeed in controllingprices, would it negatively affect biomedical research? Would there be repercussion on the prices of drugs onthe European market? It’s hard to make forecasts on the global effects of Obama’s reform, but one thing it’ssure: it will have significant repercussions on the rest of the world.The AuthorGiovanni Fattore is Associate Professor at the Bocconi Department of Institutional Analysis and PublicManagement. He was Director of MIHMEP, the Master in International Healthcare Management Economics &Policy from 2002 to 2008. He is a member of the faculty of the PhD in Business Administration & Managementand a Professor in the Public Management and Policy Department at SDA Bocconi. He is a member of theManagement Committee of CERGAS, the Center for Research on Health and Social Care Management andthe Carlo F. Dondena Center for Research on Social Dynamics. He is also member of the editorial board atPharmacoeconomics Italian Research Articles and Politiche Sanitarie and is currently President of the ItalianAssociation of Healthcare Economics.Research AreasHealth management. Health policy. Comparative analysis of health systems. Pharmaceutical policy. Cost-effectiveness and cost-benefit analysis. Research methods for management. Performance management inpublic institutions. Governmentablity. From Bocconi Newsletter no. 83/2010 24
  29. 29. ManagementChampions of Earningsby Dino Ruta Winter Olympics in Vancouver: What will remain after 2010? The economic potential of sport has multiplied thanks to media and sponsors. The globalization of sports is big business, but the social and urban benefits of hosting games should not be underestimated.In late months of 2009, notwithstanding the crisis, 1,000 delegates attended the London Sport Conference.Polls conducted on them have shown that revenues are on the increase, particularly sponsorships. Sports arriveever more easily into people’s homes and each sporting event maximizes its economic return by exploiting thevisibility of its protagonists. Sport is used a platform for national and international communication. For instance,Liverpool will promote Spain as “Official destination partner”, since its manager is a Spaniard, and so are manyof its players.UEFA has just signed a €32 million agreement to broadcast the Champions League in Croatia, although thecountry does not have very strong football clubs. Giro d’Italia is internationalizing its appeal with sites andathletes that are well-known around the world to stimulate media purchases.The value of sporting events has grown dramatically with TV rights and the global popularity of certain sportswhose appeal was recently only local. The globalization of sports events, which started with Olympic Gamesand the Soccer World Cup, is now spreading to other competitions. The study on the potential economicimpact of having a Formula 1 Grand Prix in Rome, cites €1 billion in terms of value added and 10,000 jobscreated. Rome recently hosted the World Swimming Championships and has made €45 million in revenues justfor having hosed the Champions League finals last May.Hosting a major sport event requires large investments in infrastructure and often involves the revitalization ofcities and neighborhoods. The planned investment of Chicago, had it won the competition to host the 2016Olympic Games, would have been €3.3 billion, generating revenues for €3.8 billion. Milano was European sportcapital in 2009, hosting 60 sport events where athletes from 120 nations competed. 25
  30. 30. ManagementSport events not only generate economic returns, but yield additional urban, social, and political benefits. The2009 edition of the Tour de France was physically followed by 15 million people. After the Olympics, it is theworld’s favorite live sport event. Milano’s candidacy to Expo 2015 is a byproduct of Olympic planning. Turinafter the 2006 Winter Olympics has become specialized in managing big sport competions.Summing up, one need to look not only at the economic impact, but needs to consider the intangible effectsthat remain on the ground after the event is over. Vancouver, host of the currently unfolding 2010 WinterOlympics, has seen the foundation of “2010 Legacy now”, the first organization of its kind working ondeveloping sustainable heritage in terms of sports, arts, entertainment, philanthropy. These are opportunitiesfor cultural managers that are attentive to the needs of stakeholders. Of course they shall not forget that whenit comes to sport, l’important c’est de participer.The AuthorDino Ruta is SDA Bocconi Professor of Organization and Human Resources Management and ScientificDirector of the International Master in Management, Law and Humanities of Sport (FIFA Master). He is alsoAssistant Professor of Organization and Human Resource Management at Bocconi, and Director of theMasterOP, Master in Organization and Human Resources Management.Research AreasStrategic HR. Sport management. From Bocconi Newsletter no. 83/2010 26
  31. 31. ManagementDrop the Mantras of Contemporary Managementby Francesco Castellaneta Re-read classics by past experts like Peter Drucker, if you want to make sense of the current crisis and understand the unchanging elements of good corporate governance. Or follow management fashion and risk damage down the road to the company, shareholders and stock value.Over the last two decades, management has been a bit like high fashion. From one year to the next you haveto throw away expensive clothes because they have gone out of style.Management mantras end up being adopted by the majority of companies, but then fall out of fashion, andsometimes out of luck. The latest version of management by mantra says stock options and executive bonusesare bad, rather than understanding why and when have been misused or wrongly designed.Many managers, tired and disillusioned by management fads, have started to re-read last century’smanagement classics like Peter Drucker. One of his fundamental statements is that the objective function of afirm should be neither the shareholders’ nor the stockholders’, not any other simple objective: “The search forone objective is essentially a search for a magic formula that will make judgment unnecessary. But theattempt to replace judgment by formula is always an irrational act.”The compass for managers should be pursuing the good of the company, which means its short-term survivaland long-term prosperity. The good of the firm must be should by looking at “what it’s right for the firm”, ratherthan what it’s right for shareholders, employees, or stockmarket value. If a decision is not right for thecompany, it is also not right for its stakeholders.Over twenty years ago, Drucker lambasted top management salaries that went beyond a 40:1 ratio withrespect to wage-earners. Too large differences in personal earnings push executives to take decisions basedon “partial optimizations” on a too-limited time horizon, thus endangering the long-term corporate health.When Drucker died in 2005, this ratio had skyrocketed to 400:1. He had come to believe such inflatedcompensations had become detached from the real value produced and had lost any relation with business 27
  32. 32. Managementmeasurements and long-term performance, and in the end would end up damaging shareholdersthemselves.Drucker’s most famous contribution to business literature, management by objectives, is based on the idea oflinking compensation to performance. However this required a careful balancing of short-term profitability andlong-term objectives. “Predictions concerning five, ten, fifteen years ahead a are always ‘guesses’. Still, there isa difference between an ‘educated guess’ and a ‘hunch’, between a guess that is based upon a rationalappraisal of the range of possibilities and a guess that is simply a gamble.” Annual bonuses de-linked fromlong-term performance have pushed many managers to gamble with the money of shareholders.Eighteen months into the crisis, the nefarious consequences of management by mantra are clear for all to see.To get out of the present predicament, good advice for executives would be to re-read two fundamentalbooks by Peter Drucker The practice of management (1954) and The effective executive (1966). Have a goodread!The AuthorFrancesco Castellaneta is a PhD candidate in Business Administration and Management at the Bocconi PhDSchool. From Bocconi Newsletter no. 85/2010 28
  33. 33. ManagementThe Profile of Companies Weathering the Crisisby Giovanni Valentini Europe: the results of a poll conducted on 500 medium and large firms. Those who are managing to overcome the crisis have long invested in R&D as part of their corporate culture. Plus, a well-governed growth process appears more benefical than fast growth itself in resisting the downturn.The crisis has been with us for a year and a half at least. Some say it is over, some fear it is not. It isunquestionable however that some companies have fared better than others, obtaining satisfactoryeconomic performance where others are sinking. What makes them different from the rest? Which factors canexplain their relative success and adaptability?With Laura Sobrero, I have looked at a sample of 500 medium-to-large European companies. Their 2008profitability was put into relation with the strategic choices made by those firms over the previous four-yearperiod.Checking for industry-related differences, we have found that regression analysis shows that two major factorsare at the basis of these companies’ ability to weather the crisis. Firstly, the study highlighted the importance ofsustaining sizable investments in R&D through time. It’s not enough to invest in R&D, even a lot, if it’s not part ofa protracted effort. In fact, companies having lower variance in their investments have obtained better results.This means that innovation should not be limited to introducing a new product or a new service having anever briefer lifespan on the market, but to develop internal skills over a longer period of time. This makes firmsbetter able to withstand economic shocks. R&D must be a company policy which becomes a company’sculture.Secondly, more profitable companies have followed a peculiar growth path. One could be led to thinkingthat fast-growing companies prior to the crisis performed better than companies posting lower growth. Theformer could count on higher liquidity and stronger financial resources. Our research shows that there is anoptimal growth rate for sales, beyond which negative effects prevail. There is a non-linear relationshipbetween earnings and previous sales. The highest profitability is recorded for intermediate growth rates. 29
  34. 34. ManagementGrowing beyond mere survival is important, but growth is not the objective that should be maximized.Paradoxically, excessively high growth can undermine the bases of sustainable growth in the near future.These findings are useful in constructing strategies to steer business organizations out of the present crisis andbe ready to face the next round of economic difficulties.The AuthorGiovanni Valentini is Assistant Professor of Strategy at Bocconi.Research AreasCompetitive strategy. Innovative strategy. From Bocconi Newsletter no. 85/2010 30
  35. 35. ManagementGetting Back to BasicsIs Getting Business Back on Its Feetby Paolo Preti When financial giants bite the dust, land onwership is restored to its former status and the value of quality basic products returns to the fore. A Sardinian shepherd turned entrepreneur shares some pearls of wisdom that tie into recent changes in the agricultural economy.It was last September. As I was vacationing in Sardinia, I had found in a magazine the address of a farm shopwhich according to Slow Food was among the best on the island. The directions were sketchy: the turn-off forPortobello di Gallura was all I got at the phone, but was favorably impressed after talking to the owner.My wife and I got in the car for a 40-kilometer drive to what I thought was a normal retailer. We got lost and Ihad to call back a few times to ask for the way. When I found myself in the midst of nowhere and day wasturning to dusk, I was finally told I was only a kilometer away. Behind a curve on the road, a lamp-post lit atwo-floor building with a stocky man standing outside. On a wooden board, a hand-painted sign said: “AntichiSapori di Sardegna” [Ancient Flavors of Sardinia].Mario Usai is one of those entrepreneurs – although he would probably disagree with the definition – who arefun to meet. It wasn’t a shop, but a house of his property hosting one of his three retail points. Briefly, he toldme his story. Sixty years of age, married to an accountant, eleven children ranging from thirty-two to twelveyears. Usai lost both his parents as a child. With his grandfather (who went on to live until 107) he went to workas a servant-shepherd in remote Barbagia at the age of 14. He returned to Gallura years later with 25 sheepthat were all his property.Today, he owns 200 hectares of pasture, and leases as many, 2000 milk sheep producing 300,000 liters of milk,60,000 kilos of cheese, 250 cows, 50 goats, 30 horses, hundreds of pigs. The whole business, which includes abutchery, employs fifteen people and is worth a few million euros. In addition to a punitive work schedulesince he was young, he followed two rules in life. One he heard from his grandfather: “Remember you have to 31
  36. 36. Managementbuy either gold or land”, while the second he teaches to his children: “Value means your customers and thequality of your product.”With the crisis of tertiary sector, the primary sector is back in fashion: with financial markets at historical lows,ownership of the land goes back to its former status, not only in an economic sense but in a traditional sense. Abrilliant agriculture minister, active farmers’ associations, firms run by young agricultural entrepreneurs, newmodes of distribution such as “farmers’ markets” which match producers’ supply with consumer demand andyield significant savings, a renewed attention to service and product traceability, heightened interest inhorticulture and organic vegetable gardens, which Michelle Obama has made highly fashionable, all theseelements are driving a return to basics that is boosting the fortunes of the agricultural sector.The AuthorPaolo Preti is Professor of Organization and Human Resources Management at SDA Bocconi and AssociateProfessor of Corporate Organization at the University of Valle d’Aosta.Research AreasOrganization of small and medium enterprises. Human resources management in SMEs. agreements. Growth and development of SMEs. Generational succession. Relations betweenfamilies and companies. From Bocconi Newsletter no. 86/2010 32
  37. 37. ManagementCompanies Are Still Investingin Promising Resourcesby Claudia Tamarowski Managerial education: a look at the evolution of business schools and their relations with companies, according to SDA Bocconi School of Management, which is in the top echelon of European executive education. The trend is toward tailor-made Corporate Master courses.Companies increasingly demand managerial education which is both versatile and tailored to their specificneeds: the necessity is to homogenize skills, deepen innovation and valorize talents.The common objective, via the personalization of content, is to give managers the right tools to deal withproblematic situation, interpreting available data and information to support timely business decisions.One of the elements of tailored business education initiatives is the initial assessment conducted across thevarious corporate functions and continuous fine-tuning with the participants, aimed toward the facilitation oflearning processes and the absorption of the models proposed.Usually, the first level of tailored business education is represented by non-specialist courses, which have theobjective of creating an organizational culture oriented toward economic management. At the second level,there are educational tracks that are oriented to the various business professions and top managers. At thislevel, the stated objective of corporations is to develop long-term skills in managerial profiles. An indication ofthis development is the growing interest for Corporate Masters, the so-called Academies, i.e. long-terminternational programs having very ambitious objectives. These programs to develop corporate skills areusually two years in duration, and delve into interfunctional issues with tutored on-the-field projects.Corporate Masters are attraction and retention initiatives which show how, even during an economic crisis,companies are still willing to invest in their more promising human resources. An example is provided by ChiesiFarmaceutici SpA, a company which has decided to invest in customized executive education to cover theskills gap of its managers and make them more accountable with respect to economic performance. Thus, 33
  38. 38. ManagementSDA Bocconi has strongly focused on the specificities of the pharma industry, by customizing issues andcontents of the program accordingly.The Chiesi experience is a case in point about the value of continuous education, which is successful when it isstimulating, diffuse, and calibrated to the needs of the people and the requirements of the industry.The AuthorClaudia Tamarowski is a Researcher in Corporate Finance and Financial Analysis at Bocconi and a Professor ofAccounting, Control, Corporate and Real Estate Finance at SDA Bocconi.Research AreasCorporate finance. Project financing. Asset allocation. Shareholders value. Financial communication. From Bocconi Newsletter no. 88/2010 34
  39. 39. ManagementIt’s Not Only about Low-Cost: Prices Are Polarizingby Sandro Castaldo Market share of more expensive products is growing: in 2009, one out of three goods was priced 30% more than the average. In a context where cheap discount distribution is also gaining share, the middle ground is shrinking as consumer loyalty is courted by the extremes.The logic of low-cost permeates many sectors of our economy. Low-cost has captured the growing interest ofcustomers for no-frills goods and services. All you buy is an airplane ride: all other services are proposedseparately (e.g. food, drinks), according to the logic of unbundling.In marketing, the phenomenon has been studied in terms of retail pricing policies, contrasting the Every DayLow Price (EDLP) with the High-Low (Hi-lo) pricing approach. The first characterizes the supply of retailers suchas Wal-Mart, who have made low prices a key to their positioning. This way, long-term loyalty of consumers isusually encouraged, improving the company’s consumer levels. High-Low pricing is based on price promotion,by placing a discount premium only on certain products for a limited period of time.Hi-Lo rests on a weak assumption, though. It is about attracting customers with a few well-known brandedproducts, often sold below cost, seeking to expand their in-store purchases on other, fully-priced products. Thispricing policy could turn out to be dangerous for distributors and manufacturers if it is not well managed, sinceit rewards consumer opportunism and the segment of so-called cherry-pickers, who somehow benefit fromvalue created by loyal customers. Cherry-pickers only buy products that are on sale, and thus maximize theiradvantage vis-à-vis the retailer. Summing up, the Hi-lo approach risks motivating infidels and demotivatingloyalists. Over the long term, it negatively affects customer loyalty and business performance.In 2009, Nielsen highlighted the fact that more than 25% of the products sold by large-scale retailers where soldwith price promotions, reaching 30% in giant supermarkets (hypermarchés).The EDLP approach instead offers the client a proportional return on the value of his/her purchases, warrantinga good deal on each and every product, thus creating a solid and stable relationship of loyalty. This is the 35
  40. 40. Managementreason pushing many firms to adopt low-cost pricing policies. Another element highlighted by marketingstudies is the apparent paradox of a low-cost economy. In fact, empirical studies show a polarization ofmarkets, in which both low-cost goods and services and premium priced products expand their market share,with a consequent reduction of market share for the medium-priced ranged.Looking at mass consumption items, and setting at 100 the average price of each category, one can see thatthe market share of products priced at less than 70 represented 12.6% of the sales volume, while products withprices higher than 130 account for 30% of total sales. We can thus finally talk about product differentiation,from no frills to full frills good and services, which expands the consumer’s freedom of choice and his/herwelfare. It is also good news for firms, which can innovate by knowing that customers will be able to seize onthe elements of differentiation being offered.The AuthorSandro Castaldo is Full Professor of Management at Bocconi. Between 2004 and 2009 he was Director of theSDA Bocconi Marketing Department, where he taught in various programs, including the Full Time MBA andthe EMMS, the Executive Master in Marketing & Sales.Research AreasTrust in market relations. Industry-distribution relations and channel policies. Analysis of consumers andpurchase processes. Innovation and new product development. E-commerce, loyalty and privacy. From Bocconi Newsletter no. 89/2010 36
  41. 41. ManagementWorking as Business Innovation Managerby Silvia Zamboni Change is the norm nowadays, but pushing rather than following new events is a challenge every company faces. So this job position is meant to deal with the issues of change management: stimulating new ideas, interpreting market trends, negotiating path-breaking deals.In a business environment ever more complex and competitive, it can be a significant challenge fororganizations to give rapid answers to market changes. This involves issues like establishing a web of relationsthat exceeds the boundaries of the firm, and creating, organizing and managing the virtual links between thefirm, its employees, external collaborators, suppliers, and customers.Innovation is not only about developing a new product or service: innovation embraces all business processes.It can be about either process or organizational innovation, in order to foster business growth by entering newmarkets and/or expanding existing ones, by introducing new and better products and services andimplementing new ways of working.Thus in large companies the need has emerged to have a specific role devoted to the promotion andmanagement of innovation, by creating the ad hoc position of Chief Innovation Officer (CIO), in Italy betterlabeled as Business Innovation Manager (BIM).That of the manager of innovation is an established company position in Anglo-Saxon countries which iscurrently emerging also in the Italian and European context. It originates from the evolution of other functionalor process-related corporate functions, depending on the driving factor of innovation within the firm.According to this perspective, the BIM pushes business innovation through good strategic thinking and arelated ability for economic and financial planning. This job profile calls for good organizational capabilities, inorder to manage change and negotiate the projects and processes of innovation in a structured andcontinuous way, by favoring the emergence of a creative and forthcoming company environment. He/shemust also possess high level marketing skills, in order to locate gaps in the existing supply range, stimulate thegeneration of new ideas and the market transfer of technological innovations, so that they can generate 37
  42. 42. Managementvalue for the customer and the firm. As corollary, a solid knowledge of ICT and its potential to establish internaland external collaborations complete the challenging profile of a desirable BIM.Over the last year, a research study conducted by SDA Bocconi School of Management, in collaboration withProgetti Manageriali (a service company owned by Federmanager), has looked into the skills required to fillthis new job profile and considered whether existing managerial profiles managing innovation processespossess them. The study highlighted certain areas of comparative weakness with respect to the managementof teams and external relations, in the dynamic management of core competence and competitiveintelligence, and in the organization of the innovation process in a multi-project environment. The question ofwhichone will tend to be the career path for this new job position remains open, especially in Italy wheremanagerial careers tend to be strictly vertical and specialized.The AuthorSilvia Zamboni is Professor of Operations and Technology Management at SDA Bocconi.Research AreasModels of network innovation and open innovation. Research, design and development management.Collaboration with customer and suppliers in new product development processes. Project management insettings of research and development of new products/services. Process analysis and management. Serviceinnovation and operations management. Facility management and services’ purchasing management. From Bocconi Newsletter no. 90/2010 38
  43. 43. ManagementSuper-Sponsored Sportsby Paolo Guenzi 86% of sponsorships are about sports, so huge marketing investments have been made for the 2010 World Cup. But the sponsorship sector in Europe differs widely from one country to another as soon as the discussion moves away from soccer and motor sports.Europeans are very much into sports. In the five major countries of the Old Continent, 25% of the people polledsay they are “very interested”. Add to that the “interested” 35%, and you have 6 out of 10 Europeans whowatch sports. Such interest has led to ever-growing investments to sponsor teams, athletes, and wholecompetitions.In Europe, according to International Marketing Reports, sponsorships involve sports in 70% of the cases, andsport sponsorships account for 86% of the total value of sponsorship agreements. The growth of the sportsbusiness has led the development of investments in the industry by media and companies. According to manyobservers, sports sponsorships have reached a stage of maturity in Europe.Looking at sponsorship typologies, team sports weigh in for 62% of the total, followed by events (23%) andindividual athletes (12%). Naming rights contracts for facilities such as stadiums and coliseums are spreading,buy they account for only 2% of the total. In the Old Continent, the sponsors focus on two sports: soccer (38%)and motoring (32%). Other sports get a lot a less in spite of their popularity: for instance, tennis is liked by 23% ofthe population, but attracts only 3% of sponsorships. Such a lower pulling factor is explained by theheterogeneity of interest into various sports across different European markets. In fact, while soccer, car andmotorcycle racing are liked everywhere, track and field is appreciated by 30% of French, but only by 14% ofItalians.Thus there are marked cultural and local specificities that heavily influence business potential for differentsports in various countries. Other social profiles also matter. For instance, basketball is very much liked bypeople under 30, while skiing is uniformly liked by all age brackets. The concentration of interest in specificcustomer segments, while limiting investment opportunities for generic investors, offers the possibility of moretargeted communication for potential sponsors, which is attractive for companies aiming at selected publics. 39
  44. 44. ManagementFor example, sailing attracts a lot of money from the fashion business, which is almost completely absent fromother sports. Looking at the industry of provenance, among sponsoring firms dominate financial services (13%of the total value of sponsorship contracts), automotive companies (12%) and telecommunication firms (10%).The main challenges for the actors involved in sponsorships (the sponsor and the property owner) areoptimizing return on investment for all side of the deal and improving the measuring of performance. To reachthese objectives, ever more articulated and specialist marketing and brand management skills are required tooptimize sponsors’ outlays. Market research needs to be deepened to gain a better understanding of sportsconsumers and their reactions to sponsorship initiatives.The AuthorPaolo Guenzi is Associate Professor of Corporate Economics and Management at Bocconi and Professor ofMarketing at SDA Bocconi, where he is director of the courses on sales.Research AreasSales management. Relationship marketing. Marketing of leisure. From Bocconi Newsletter no. 91/2010 40
  45. 45. ManagementInstitutional Factors and CompetitivenessDetermine Where Cars Are Madeby Carlo Alberto Carnevale Maffè FIAT and the others: the industry is changing; a careful balancing of institutional relations and production priorities is now the rule of the game. The national identity of a product is complicated by global supply chains, brand loyalty versus territorial presence and new twists in labor relations.When somebody says “Made in Italy”, I say “Not so fast”. In the years of galloping globalization, the “Made in”concept underwent profound changes in cultural and economic terms: its territorial identity was progressivelyeroded, as it turned into an almost accidental organizational option, embedded into a complex andgeographically distributed logistical chain. The corporate brand, this was the mantra of marketing, mustreplace geographic origin denomination as guarantee of quality: Made in had to become Made by; thereference was no longer a nationality and a territory, but a brand and an organization. But the worsteconomic crisis in years, with its pangs of protectionism and mercantilism, has taught sharp-minded managersto consider manufacturing labor as a fundamental arbitrage factor in national and international maneuveringfor fiscal aid and company subsidies.For major manufacturing firms, today more than ever, labor is a bargaining chip in the institutional and politicalgame. The great industrial challenge is to marry the constraints imposed by economies of scale andrationalization of production with the renewed role of national governments in protecting employment.The case of the auto industry is exemplary. During the period of most acute economic crisis, France, Germany,and then the other European counties, have come to the rescue of the national car industries with direct orindirect subsidies, blatantly disregarding EU regulations prohibiting government aid to business companies: theinfluence of competition authorities was effectively neutralized by global financial emergency. In an industrydeeply in crisis, the protection of the “Made in” has become the political justification to shelter employment.In Italy, FIAT. dealing with a crisis too large to be compensated by the intervention of a too small nationalstate, has immediately seized on the opportunity, with the acquisition of Chrysler, to propose a risky institutional 41
  46. 46. Managementdeal to the US government, offering technological synergies and maintenance of employment levels inexchange for a company share with a total control option. And in recent weeks, with the “Fabbrica Italia”initiative illustrating the new industrial plan, Sergio Marchionne put on the table the doubling of car productionin Italy, in exchange for the unions signing for additional flexibility on the assembly line. This smart move in termsof industrial relations is accompanied by the choice of unremitting standardization of car components, thesharing of technological platforms and modules and the pursuit of economies of scale through industrialcollaborations that are global in scope.In car-making, however, the share of value added represented by the final assembly of the vehicle – i.e. whatis considered “Made in” – has steadily declined through the years, to the benefit of upstream stages ofmanufacturing (components and platforms), as well as downstream stages such as selling formulas andfinancing schemes. In the automotive industry, the Made in Italy is reinventing itself: it will more and more beconstituted by the optimal minimum perimeter of processes to ensure the right compromise between, on oneside, the level of industrial relations and the national identity of the product, and on the other therationalization imperatives of an irreversibly global production chain.The AuthorCarlo Alberto Carnevale Maffè is part of the teaching faculty in the Strategic and EntrepreneurialManagement Department at SDA Bocconi, where he was also coordinator of the Master in CorporateStrategy (2003-2007).Research AreasCompetitive intelligence. Non competitive strategies and international strategies. Strategies of technologicalinnovation. Industry focus: technology, media, telecommunications, luxury goods. From Bocconi Newsletter no. 91/2010 42
  47. 47. ManagementBringing Craftsmanship Back into Fashionby Stefania Saviolo The Italian touch is about acknowledging the value that artisans, tailors and seamstresses bring to the fashion product. Not easy in a globalized economy, but one company is putting craftspeople in its stores to show customers just how skilled a true artisan can be.The current crisis has made the customer more selective on price and quality. Italian fashion companies canseize on this opportunity, by exploiting traditional values and skills, which today need to be re-emphasized withnew vigor. Much of the debate on Made in Italy fashion has been on the traceability of production, aprinciple which was embodied in recent legislation. But in order to give real content to the Made in Italyinitiative, underlying factors of craftsmanship, innovation and taste, the factors that have made Italian fashiongreat, need to become more apparent and better supported.High-end companies thus have a different role from mass-market companies. In mass fashion, the customerlooks at the price and seeks emerging style trends. In high-end fashion, the customer expects high quality, interms of creativity, touch, luscious materials, and connection to a country or landscape. Celebrating thesophisticated skills that are behind a fashion brand has recently become the communication strategy ofchoice for major fashion houses.“Forever now” is the claim of Gucci’s advertising campaign for 2010. It highlights the role of its artisans ininterpreting the quality and tradition of the fashion firm. At Gucci’s Rome boutique, one can find the “ArtisanCorner”, a project which will soon go the world round, where the artisanal process of making purses andaccessories is made visible to the clients. Gucci has recently stated that its products will continue to be made100% in Italy, and that it will continue to invest into the craftsmen that work for the company (7,000 in Tuscanyalone).At their latest fashion show, Dolce & Gabbana have joined the trend toward a higher appreciation ofcraftsmanship, by showing the expert female hands of a tailor making an iconic D&G jacket. 43
  48. 48. ManagementBut there are companies that have always put the product and the human touch at the heart of theirstrategy. Brunello Cucinelli and Tod’s have always linked excellence of the product to excellence of theterritory. Cucinelli received the 2010 Confindustria Award for Excellence as best company for territorialvalorization. Cucinelli calls his employees “my 500 thinking souls.” Tod’s runs the biggest Western shoe factory,located in Italy, and puts the “Italian touch” at the heart of its brand philosophy.The crisis caused by the sorcerer’s apprentices of finance will perhaps give a renewed role to those artisanalmasters whose creations can give new shine to the Italian fashion miracle. This would be the veritableinnovation in a country where the factory shopfloor and artisanal labor have never been given their due. Butit’s not a return to the past. Craftsmanship is today aided by technology and must find its niche within complexglobal chains of production and exchange. The new Made in Italy must offer value to the global customer,balancing tradition with innovation.To do this, two major problems still need to be solved. Firstly, we must make this culture attractive to our youngpeople. In order to attract them toward these jobs of craft and skill, we need new forms of education andtraining and an adequate social status for those working in them. Secondly, business ethics needs to berestored in Italian fashion. The drive for lower costs, higher flexibility, and quicker time of delivery has generateda mass of subcontractors working under conditions of dubious legality, in order to be able to survive. It wouldbe a paradox if the Made in Italy were to based on underground labor in clandestine sweatshopsThe AuthorStefania Saviolo is a Lecturer in the Department of Management and Technology at Bocconi and Co-Directorof SDA Bocconi’s MAFED, the Master in Fashion, Experience and Design Management. She is also Professor ofStrategic and Entrepreneurial Management at SDA Bocconi.Research AreasManagement of fashion firms. Brand management. Internationalization strategies. From Bocconi Newsletter no. 92/2010 44
  49. 49. ManagementThe Lone Man at the Top Doesn’t Come Out on Topby Beatrice Bauer and Massimo Magni The model of the male manager taking all the decisions and overstressed by too many activities and too little time is not working. A Bocconi questionnaire outlines this managerial style and finds that the remedy for isolated individualism and poor communication is teamwork.Over the last few years, more and more managers realize they don’t have the necessary skills to deal withproblematic situations and abrupt changes, and are unable to face stressful situations with a cool andbalanced mind. A recent research study conducted by the Bocconi Institute of Organization and InformationSystems highlighted the fact that 56% of interviewed managers think they have too many activities to perform,while 57% feels they don’t have sufficient time to deal with all their tasks.It’s not surprising that the creation of a good team capable of overcoming exasperated individualism andintegrating different skills and attitudes is one of the problems that are absorbing leaders’ energies. Leadershipbased on the image of the strong man who imposes his ideas and obtains uncritical obedience from his teamis no longer a factor for success.Today, aside from knowledge of the market and of one’s business, it has become a fundamental quality for aleader to be able to stimulate the energy, participation and proactivity of his/her collaborators, in a carefulbalance between himself/herself and the others. This aspect is often given scant attention: leaders don’t knowhow to transmit their collaborators their vision for the future, are unable to express the objectives to bereached in an attractive way, often limiting themselves to defining the individual actions to be performedwithout providing a larger understanding of the context. From the results of our research, it emerges that 36%of the difference in the ability to innovate and 44% of the ability to face the unexpected by teams isattributable to the team leader.But what are the secrets of a leader who is able to manage a team effectively? The findings point towardcertain essential elements which help the leader act with the right style at the right moment. First of all, self-knowledge. Good team leaders exhibit a high level of self-awareness regarding their own strengths andweaknesses. This aspect is important, because it leads the leader to realize when something is beyond his/her 45